Leasing Your First Commercial Property – Why a Good Schedule-of-Condition Matters

As your business expands and you look to take on your first commercial lease agreement, you may be stepping into a world you know little about. As you may appreciate, different norms and principles apply to commercial property compared to residential.

As such, inexperienced commercial tenants can be caught out if they do not prepare properly in advance and take the necessary professional advice at the right time.

One area which can be particularly problematic within commercial property is repair liability, especially liability for repairs and making sure the property is in a suitable condition at the end of the lease. In this article, we will be discussing how to protect your position concerning such liability and how a Schedule of Condition can be a very useful tool.

What is a repair covenant?

Within a commercial lease, there is always a repair covenant clause. This states your repair obligations as a tenant in respect of the premises. For example, a commonly used term is that you’re required to maintain the premises in ‘good and substantial repair and condition’. This is a high threshold but is often preferred by landlords.

What are dilapidations?

Dilapidations are the extent to which the actual standard of repair and condition of the premises at the end of your lease differs from the standard as required by the repair covenant. As a tenant, you can be held liable for all the costs associated with bringing the premises up to the condition required by the lease. Commercial property lawyers call this ‘dilapidations liability’. 

However, the key takeaway point here is that the repair covenant may state a higher standard of repair and condition than the premises were in fact when you originally entered into the lease. In other words, unless you’re careful at the outset with the wording of the lease repair covenant, you can be held liable for an expensive bill at the end for improving the landlord’s property for the landlord’s sole benefit.

How do I protect against dilapidations liability?

You should ensure that the repair obligations in the lease are fair and reasonable and that they are limited by reference to a Schedule of Condition. This involves careful wording being inserted into the repair covenant.

How does a Schedule of Condition help?

A Schedule of Condition is a document which is annexed to the lease which records in detail the standard of condition of the premises at the time you sign the lease. It can be professionally prepared by a Chartered Surveyor, or it can simply be a series of high-quality photographs covering every area of the premises. 

The Schedule of Conditions limits your repair obligations such that you’re not required to return the premises to the landlord in any better standard of repair and condition than as evidenced by that Schedule.

At the end of the lease, when the landlord (or their surveyors) assesses the property and prepares the dilapidations report, you can use your Schedule of Condition to assist you and support your cause; if they highlight any areas for repair that were already in disrepair when you inherited the premises, the landlord cannot hold you liable for those repairs. 

This is particularly important if you’re leasing an old building or one with structural issues or other serious defects, where potential dilapidations liability can be a serious concern.

Wrapping up

If you’re taking on your first commercial premises, you should take legal advice to ensure your interests are protected. Appointing solicitors to advise you, allows you to focus on your business knowing that your lease is being looked after properly. 

If you need help understanding areas of leasehold liability or wish to limit your repair obligations by including a Schedule of Condition clause, LawBite’s solicitors are on hand to advise.

We have a team of experienced lawyers who are not only highly skilled but also friendly and approachable. Whether you need assistance with commercial, corporate, or employment legal matters, we're here to help. 

About the author

Ashley Gurr is an expert business lawyer at LawBite. Ashley has over 15 years of experience in private practice helping SMEs and in-house for an international consultancy group advising on commercial contracts and a multi-national utility giant in a contract strategy role.